Back into the Cauldron: Patent Suit Renews Bitter Dispute Between Gasification Rivals Quantum Catalytics and Ze-gen

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Boston clean-energy startup Ze-gen is building a pilot plant where waste materials are vaporized in a giant vat of molten iron, producing “syngas” that can then be burned to make electricity. When a federal judge in Texas dismissed a patent-infringement lawsuit against the company last month, Ze-gen had cause to hope that its recent legal hassles had also turned to vapor. But then, last month, its accusers filed a new complaint in federal district court in Boston. And with Ze-gen expected to file documents refuting the allegations soon, the case is likely to get a lot more complicated before it burns out.

Ze-gen’s plant, which I toured last year, is located adjacent to a waste-management facility in New Bedford, MA. Quantum Catalytics of nearby Fall River, MA—a company led by MIT’s former top technology-licensing officer, John T. Preston—says the design of the Ze-gen plant is based on patents and trade secrets owned by Quantum, intellectual property the company licenses exclusively to Texas Syngas, a Houston company that it co-owns. On August 22—the same day Ze-gen filed a motion to make Quantum pay its legal expenses in the dismissed Texas case—Quantum and Texas Syngas filed a complaint in the U.S. District Court of Massachusetts that repeated and expanded upon the Texas suit’s allegations of patent infringement and misappropriation of trade secrets.

Ze-gen, founded in 2004, hasn’t yet filed a response to the Massachusetts suit. But CEO Bill Davis calls the case “frivolous” and says that Ze-gen will “respond forcefully” in documents that could be submitted to the court as soon as this week.

It all adds up to an interesting case study in the tussles that can spring up between early stage technology companies as potential rivals seek to head one another off, even in industries such as clean energy that supposedly occupy a moral high ground. And a review of the available court records suggests that Ze-gen may have a tougher time fighting back against Quantum’s accusations in Massachusetts than it did in Texas. There, the courts didn’t rule on the substance of the patent-infringement allegations, but merely said that the dispute between the two Massachusetts companies was outside their jurisdiction.

Quantum’s side of the story—which stretches back to the late 1980s, when a Fall River company called Molten Metal Technology began developing methods for breaking down waste in a superheated metal bath—can be read in detail in the complaint it submitted to the Massachusetts court and in the welter of documents filed in the Texas case.

Davis, for his part, will only say that, “It’s a classic kitchen-sink case where people are trying to essentially extort money from other companies.” But parts of Ze-gen’s side of the story, too, can be extracted from the paperwork it filed in the Texas case.

Molten Metal Technology, where Quantum CEO Preston was a director and major shareholder, was formed in 1989 around technology developed at MIT that promised an environmentally friendly way to dispose of hazardous wastes. The company raised $80 million in a 1993 IPO, and at one point was called “a shining example of American ingenuity, hard work and business know-how” by Vice President Al Gore. But the company filed for bankruptcy in 1997 after anticipated commercial contracts and government grants failed to materialize. Allied Technology Group, a radioactive waste handling company, purchased the remains of the company in 1998 for $10.5 million. As part of the bankruptcy proceedings, Quantum Catalytics obtained the rights to 14 of Molten Metal’s patents, including methods for dissolving waste and controlling chemical reactions inside a molten metal bath.

In its complaint, assembled by prominent Boston intellectual-property law firm Brown Rudnick, Quantum alleges that Ze-gen gained access to the confidential information and trade secrets embodied in these patents by hiring a string of former Molten Metal employees, beginning with a man named Vick Gatto, who joined Ze-Gen in 2004. Quantum says Gatto advised Davis to approach Quantum and Texas Syngas about licensing the companies’ molten bath technology. Davis did meet with Preston, who refused to grant the license, according to Quantum’s complaint. But Ze-gen got the proprietary information it needed anyway, according to the complaint, both through Gatto and by … Next Page »